Improving Your Savings Rate

Knowing what you’re currently saving is an important part of making sure that you’ll achieve your financial objectives. What percentage of your gross income (the amount of money you earn before paying taxes or anything else) are you saving? To answer this question, follow these steps:

What is your gross income per year?

Gross income is what you make before you pay your taxes.

How much are you saving for retirement each year?

It’s wise to put aside 10% for retirement, but be honest about how much you actually sock away.

Divide line 2 by line 1 to compute your savings rate.

Most people in the United States spend 100 percent of their income — an unfortunate reality. However, you know better. You can’t spend it all now and still have what you need for your future.

Determine how much you need to cover all of your periodic expenses throughout the year and divide that number by 12 to arrive at your monthly savings requirement.

Have this amount withdrawn from your paycheck or checking account every month and set aside into one or more money market accounts. When those periodic expenses arise, you’ll then have the funds available to pay them.

Set aside money each month to cover large periodic expenses that you incur, such as annual vacations, holidays, estimated taxes, real estate taxes, home remodeling, auto insurance, life insurance, and so on.

Consider establishing an automatic escrow account for your mandatory expenses and a separate automatic escrow account for your discretionary expenses. Mandatory expenses must be paid. Discretionary expenses (or spending) occurs only if you have the money set aside for these purchases. If not, you may find yourself using your credit cards when you shouldn’t.

For a listing of the best interest rates on savings and money market accounts, visit the Bank Rate Web site and click on the Checking and Savings link. ING Direct offers a money market account that tends to retain its spot as one of the highest-yielding money market accounts going.